Category Archives: Best Practices

Service Leaders Speak: William Dorn of Source One on “Doing More With Less”

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Today’s guest post is from William Dorn, Director of Operations at Source One Management Services (who bring you Why Abe), and Kathleen Daly. William is a regular contributor to The Strategic Sourceror.

As companies continue to cope with the current economic conditions, Purchasing Departments, equipped with fewer resources than ever before, are expected to deliver continuous savings. Task lists lengthen due to internal and external pressures, and it becomes increasingly difficult to produce results in the form of cost reduction, cost avoidance and increased supplier value. The requirement of accomplishing more with less may be an overwhelming responsibility; but with the proper toolsets, resources and solutions available in the marketplace, Purchasing Professionals can begin to position their companies for growth as the economy recovers.

Before taking any further action, Purchasing Managers must first assess the situation in which they may find themselves. What internal and external pressures are influencing my productivity? Is my company able to withstand a supply chain disruption without serious repercussions? Do I have a risk mitigation strategy in place? Can I realistically reach my company’s goals with the resources I have available to me?

Internal pressures may be coming from many different directions. Executive Management asks for results in the form of costs savings and stable supply chains. The Finance Department requests extended payment terms. IT Departments may perceive the Purchasing Department as a cost center rather than a profit center, creating the impression that no technological investment is needed. Sales and Production Departments need inventory availability in order to deliver a product in a timely fashion. HR is not able to allocate more resources. Each department is focused on fulfilling their own responsibilities which often leads to additional constraints placed on other departments, namely Procurement.

The external environment and its increasing complexity have created additional burdens for Purchasing Departments. Let’s sum up what is taking place …

  1. Suppliers are refusing to agree to longer payment terms because they simply cannot afford the impact this would have on their cash flow. Also, many suppliers may no longer exist, and this requires buyers to invest time in forming relationships with new suppliers.
  2. Fuel prices are also starting to increase again, which will lead to rising commodity prices as well.
  3. Buyers may also experience reluctance from suppliers to participate in reverse auctions; and some are even refusing to respond to regular RFP events.

Whether Purchasing Professionals can relate to some of these pressures or, unfortunately, to all of them, the reality is that their supply chains may be unstable and action is required to bring them back to solid ground.

Now that we have covered some of the stress that Procurement Departments have been facing, Procurement must look internally to determine what efforts have been made in the past, what is working and what needs to be reevaluated. Procurement must reevaluate old strategies before implementing new ones. Slight modifications to legacy purchasing or sourcing methods could lead to more efficient processes and lower costs. You should not focus strictly on new categories; revisiting categories you have recently sourced may lead to drastically different results with a new approach. Markets change constantly and your company’s spend in a certain category may have increased, or perhaps the market demand for the product or service has decreased, enabling you to possibly leverage better pricing. Your past just may be the key to your future.

Alternative methods to what have been used in the past should also be explored. A recent study, published by AMR Research, found that organizations that rely heavily on technology could experience the same or greater inefficiencies and missed opportunities than their not-as-heavily tech-invested competitors. Procurement must reevaluate their existing methods and adoption of technology. Are you paying for an expensive, feature-rich procurement and sourcing suite, when in fact you only use 20% of the capabilities. If so, you must reevaluate the cost of deployment and take advantage of the other components, or eliminate the costs of the software by seeking out lower-cost alternatives that fit your organization’s individual needs.

Fortunately, the market for e-sourcing and procurement technologies has significantly expanded your options over the last few years. Low cost providers have emerged that often offer equivalent features to the largest tool providers. In fact, in the last several months, completely free toolsets, such as WhyAbe.com and ThomasNet.com’s Purchasing Manager, have seen a significant increase in adoption by not only companies that are new to procurement technologies, but by large organizations that are abandoning expensive toolsets in order to adopt free alternatives that serve the exact needs of their organizations. Moving to a lower-cost technology will not only help your company’s bottom line, it could help eliminate the idea that Procurement is a cost center, and could potentially allow Procurement to allocate funds into investing in new human resources.

However, regardless of which solution you adopt, be careful to use the tools properly in your organization. Purchasing and e-sourcing software solutions must be used as tools and not answers. No tool provider has the exact answer for any vertical market. Find a solution that best fits your organization’s requirements, don’t allow a technology dictate how you do business. Tools can facilitate project communications, shrink project timelines and retain templates and analysis for future use, but should not be used as a replacement for true strategic sourcing. Keep in mind that over-reliance on purchasing technology tools and processes may only automate the inherent problems with the existing processes in place. Before investing in new technology, be sure to put existing processes through a thorough analysis to identify opportunities for improvement. Whatever you do, be sure that your organization does not become an “RFP Spammer”.

Moving beyond technology, Procurement must evaluate other non-conventional options that it has available to it. Pre-negotiated contract websites (such as Master Negotiator), group buying organizations, and solution providers (such as Source One) can provide additional resources that help Purchasing Professionals accomplish goals without adding to a company’s cost structure. These resources enable buyers to let someone else manage the sourcing process for them, saving time and resources. Service organizations can provide low-risk solutions for companies of all sizes. These engagements allow access to market data, best practice processes, domain or category expertise, on-demand resources, effective tools, negotiation experience and insights, alternate sources of supply, and the establishment of long-term supply relationships.

Adopt the right blend of sourcing strategies for your organization. Many Procurement Service Providers can obtain better pricing than a GPO. Many companies excel at sourcing their strategic spends. Many purchasing departments have subject matter experts in particular categories that are considered market-leaders in their own rights. However, NO COMPANY is the best at every category. A GPO may work for you in several tactical spend areas, and can help reduce the overhead costs associated with sourcing and category management. Some spend categories are better served without the use of technology tools and require good old fashioned thinking, creativity and supplier interaction. Understand that a person who is incredibly familiar with a technology or product does not necessarily make them into a procurement guru or master negotiator. Using the correct blend of strategies in your organization can produce results far superior to sticking with one sourcing/procurement process across all of your spend areas.

One positive of this difficult economy is that it is opening the eyes of many Procurement Professionals. In the past, many Procurement departments would only seek out external help or external strategies if they were required to by executive management. In this day and age, Procurement is determining on their own that they need help and they are actively looking for it. Procurement Professionals have already realized the need to become more resourceful and proactive in their efforts in navigating the changing business climate, in many cases, much faster than the rest of their organization. Some have taken the initiative in identifying outsourcing services that provide low-risk solutions or temporarily help them increase their human capital. Adoption of contingency based sourcing consultants has seen a significant uptick, as it allows Procurement to expand their resources and tools without assuming any additional costs or risk to their businesses. With a contingency based service organization operating as an extension of a company’s Purchasing Department, there is no need to be concerned with whether or not the soft costs of an initiative will pay off in hard costs savings, as the right providers will agree to only get compensated on hard-dollar cost savings. With certain solution providers, implementation and all expenses are included in a pay for performance model and fees are contingent on achieving hard cost savings results. In the past, executive level individuals and finance departments have pursued these types of engagements. Now, the drivers of these engagements are Procurement Professionals as they reach out for help on their own. These proactive efforts will deliver improved results for a Purchasing Department.

The majority of an Organization’s internal resources should be allocated to optimization of the company’s strategic spend. If a certain product has a high supply risk and high value, it is essential to establish a secure and responsive supply base with the capabilities of meeting current and future business needs. Agreements with suppliers should be established so that both parties can share information and closely integrate systems to obtain operating efficiencies. This should result in reduced costs for both parties.

When faced with many challenges in this dynamic environment and accelerating expectations from within their organizations, Purchasing Professionals must take full advantage of the resources available to help them begin their climb out of the recession.

Thanks, William.

Service Leaders Speak: Robert Rudzki of Greybeard Advisors on “Consultants: Use Them Intelligently”

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Today’s guest post is from Robert A. Rudzki, a former Fortune 500 senior executive of supply management who now advises other companies as President of Greybeard Advisors LLC, a strategic management advisory firm. Bob has authored several business books including Beat the Odds: Avoid Corporate Death and Build a Resilient Enterprise and Straight to the Bottom Line. Bob also writes the “Transformation Leadership” blog for the Supply Chain Management Review. (e-mail Bob at rudzki <at> greybeardadvisors <dot> com.)

Chapter 22 of the book Straight to the Bottom Line has an intriguing title: “Consultants: To Use or Not to Use — That is the Question“.

When my co-authors and I wrote the book a few years ago, we were speaking as corporate practitioners, having led successful procurement transformations in a variety of industries.

Today, I’d like to build on that corporate perspective (in my case almost 30 years at Fortune 500 companies), to share some additional observations that emerge from my experiences working with clients as their advisor.

First of all, let me say that I reread Chapter 22 before writing this post, and found its advice sound and very timely. If you haven’t read the book, or the chapter on consultants, you really ought to.

In fact, a table that appears in the chapter is worth repeating here:

 

Unnecessary to Use Consultants Consider Using Consultants
Benchmarks confirm that your internal processes/results are best-in-class You lack benchmarks and are uncertain how good your processes and staff are
Company is able to make ongoing investments (people, systems) to achieve and remain best-in-class Not able to invest as needed
Best-in-Class Category/Market Expertise No particular internal strength
No urgency to achieving significant cost reductions Time is of the essence for achieving improvements
Best-in-class already, and still reaping new benefits each year Not generating significant new benefits each year
Internal staff able to effectively deal with internal politics Internal politics constrain achievement of cost reduction objectives; a “third party” might have credibility
Your organization lacks a leader, and you hope that the consulting firm can fill that gap You want to supplement your internal talent for a defined time period

 

Source: Straight to the Bottom LineNote: Straight to the Bottom Line is a registered trademark of Greybeard Advisors

Since Greybeard Advisors was formed five years ago, my colleagues and I have had the pleasure of working with large and medium size companies in most industry segments (including manufacturing, process, health care, services, retail). We’ve seen some excellent practices relating to using consultants (or advisors) intelligently.

We’ve also seen some poor practices that are all-too-common. In one case, we were invited in to do a “post mortem” on a consulting project by a large firm, and saw examples of fundamental errors by both the client and the consulting firm.

As I reflect on what I have seen and heard, some of the key learnings can be boiled down to the following chart. Take a minute or two to carefully review it. You should notice that using consultants intelligently requires mindset and behavior changes by both the client company as well as the consulting firm.

 

What Typically Happens Leading Edge Practice
Top-down directive that the procurement department will work with a specific consulting firm Procurement leader takes the initiative and sends an RFI to a broad range of potential service providers (large and small firms; consulting vs. advisory firms); short list invited to respond to an RFP
Selection criteria unknown, beyond assumed personal relationships at the executive level Selection criteria established as part of the RFP process, and are consistent with the needs/desires of the procurement organization and the company
Consulting firm uses “A” team to manage the executive relationship, but sends the “B” team of inexperienced junior consultants to learn on the job and “do the project” Firm is selected only after ironclad assurances that the “A” team of experienced advisors will be assigned; resumes of advisors are provided; and the client is encouraged to interview each advisor.
Consulting agreement is rigid and aggressive, requiring a hard commitment to a large number of full-time consultants for a defined timeframe (often 6 to 12 months, or more). Agreement is flexible, reflecting the client’s workplace realities, needs and timing
Consulting firm disrupts everyone’s “regular job” in bid to ensure that its project is everyone’s priority and is a success Firm works with the reality of client’s workplace and schedule, and is careful not to be a disruptive force
After consulting firm leaves, reported “savings” start to evaporate or can’t be found Firm has embedded processes and capabilities into the client organization, which now can create more successes on its own

 

(c) Greybeard Advisor LLC, All Rights Reserved

One of the fundamental choices you need to consider is whether you want to employ a “consultant” or an “advisor”. The distinction is not just semantics, it is core to what you are trying to achieve.

Do you want a hired gun to knock out some work and then depart? Or do you want an advisory approach in which process knowledge (e.g. specific best practices such as strategic sourcing and negotiations management) and commodity knowledge are transferred to your team?

To use a familiar analogy: Do you want someone to hand your team a fish dinner, or do you want your team to learn how to be successful fishermen themselves while they catch their first few fish?

Thanks, Bob!

A Guide to Analyst Briefings

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Brian Sommer just published a great piece on your analyst firm pitch over on Software and Services Safari that is a must read for anyone who wants to pitch analysts … or certain bloggers … who are short on time (and short on patience when it comes to bad pitches).

He offers four pieces of advice that you should take to heart.

  1. Build an Issue-Based Deck.
    Put the background information in a separate document. A good analyst doesn’t care about your glorious leader, your grand vision, or your office locations. They want to know what you have that their readers will be interested in. That’s it.
  2. Focus on the Issues
    What challenges do you solve, how are you unique, and where are you going.
  3. Offer Some Insight
    Challenge assumptions. Include some non-obvious, a-ha realizations. Keep your deck, which only exists to frame the problem and solution, under an absolute maximum of 10 slides.
  4. Get to the Demo ASAP
    The proof of the pudding is the eating. And, if you happen to be dealing with the doctor, that’s all I care about. I loathe PowerPoints. Any more than 1 to 2 slides to frame the problem, 1 to 2 slides to frame the solution, and 1 to 2 slides on some unique capabilities, challenged assumptions, or a-ha realizations, and my mind is off thinking about real innovation.

When you get a chance to brief an analyst (or blogger), remember that this isn’t an opportunity to drone on and on about yourself. You need to cultivate the image that you and your firm are special, thoughtful and strategic. The analyst (or blogger) needs to learn something from this exchange. If the only thing they learn is the names of your executives and the solutions you sell, I’ll guarantee that the analyst (or blogger) won’t write a report about you or, worse, will write a negative one. Analysts (and bloggers) write about things that impress them. Give them something to write about!

I could not have said it better myself.

McKinsey’s Leadership Lessons for Hard Times

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A recent article in McKinsey, which was based on a series of interviews with 14 CEOs and Chairmen of big companies like 3M, Tyco, Pepsi, P&G, and Sysco, described some emergent “leadership lessons for hard times” that was a good read. The harder times get, the more important good leadership is. Anyone can lead during a boom when consumers are spending freely and impulsively … but it takes a special type of leader to lead when the sky is falling all around you.

While not a complete list of lessons that a leader needs to learn, the following five lessons that emerged from McKinsey’s discussions are definitely critical.

  • Confront Reality
    The sooner you accept reality, even if it is a drastically constricting market, the sooner you can start dealing with it. The first company to deal with it is often the winner.
  • Put Strategy First
    Strategy should be the first item on the agenda of every board meeting … and you should be taking advantage of everything your board members have to offer.
  • Be Transparent
    At all levels. You will need the support and trust of your employees to make it through … and that will require regular, open, communication. Openness builds respect, trust, and solidarity which in turn helps employees stay focussed.
  • Build a Culture
    A culture binds a company together and helps to create trust.
  • Keep the Faith
    Even a crisis has opportunities, and since the nature of markets is that they follow up and down cycles, things will eventually get better.

And whatever you do, avoid the axe. Use a scalpel if you must, but never the axe. Chopping off the arm when you only needed to remove a finger just doesn’t make sense.

For a much deeper discussion, refer to the article. While a bit lengthy at 6 pages, it’s definitely worth it.

10+2 Strategies for Managing Suppliers

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A recent article in Industry Week had a good article that outlined “10 strategies for managing suppliers”. In brief, they were:

  • Understand the true cost and value of the supply chain.
    A supplier cannot be properly evaluated unless you understand the costs they entail and the value they bring.
  • Realize that supplier strategies go two ways.
    It’s not just what the supplier can do for you, it’s also what you can do for the supplier to help the supplier lower costs. Can you secure the raw materials cheaper? Pay earlier and mitigate their need for expensive credit lines (and thus reduce your total cost)?
  • Accept accountability.
    You need to be planning sufficiently in advance to insure that you place all orders with acceptable lead times. You need to insure a supplier has the information they need, when they need it.
  • Incorporate appropriate service levels and metrics into agreements.
    A supplier needs to know precisely what is expected of them if they are to live up to your expectations.
  • Spend equal time aligning incentives and penalties.
    Despite your inclination as a risk mitigator to always worry about the worst cases, you need to also consider the best cases and incentivize the supplier to deliver above and beyond their commitment.
  • Share critical information as early as possible.
    Sharing information constantly, with appropriate security and confidentiality, is critical for successfully managing a supplier relationship.
  • Plan for everyday exceptions.
    Even the best of plans will go astray. Make sure you have a plan that specifies how emergencies will be handled and which party is responsible for what.
  • Plan for major contingencies.
    And make sure to walk through the plans regularly with your supplier.
  • Expect and reward honesty.
    The best supplier relationships require honesty when exceptions to normal operations occur. Companies should require immediate notification without penalty when critical supplier situations occur.
  • Make relationship meetings meaningful.
    Relationship meetings should focus on critical issues, areas for supplier improvement and discussions on how the buying organization can improve the relationship.

To this list, I’d add the following two:

  • Make sure the scorecard goes both ways.
    A relationship is a two way street and the best way to capture this is to do a two-way scorecard. You can’t expect your supplier to deliver stellar performance if yours is sub-par.
  • Educate and train.
    Don’t just tell your supplier what you expect of them, show them and give them the training they need to exceed expectations.